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Proactive legal steps to prevent shareholder disputes

On Behalf of | Jun 15, 2020 | Business Litigation |

In small to mid-sized businesses, shareholders typically know each other. They may be family, friends or acquaintances from the same community. However, in business, it is vital to maintain professionalism in the legal documentation and operations of your business to avoid potential problems, such as costly litigation from a dispute.

Relationships are, by nature, somewhat unpredictable. Yet solid business foundations, legal documents, and policies can establish a preventative atmosphere of trust, transparency and amicable dealings among shareholders.

4 tips for creating a positive shareholder culture at your company

  • Have a lawyer draft a clear shareholder’s agreement, outlining rules and guidelines as well as procedures in the event of an owner’s exit or entry.
  • Hold formal meetings and keep excellent records. Operate with a high degree of professionalism, so that you have documentation in case you should ever need to reference notes in the event of a dispute.
  • Account with transparency. Shareholders have a right to view the company’s financial documents and withholding such information is a breach of fiduciary duty to disclose.
  • Update the value of your business regularly to ensure that buy-sell documents are accurate. If a shareholder wishes to sell or buy-in, they have a right to know their options.

Shareholder disputes can devastate a small or mid-sized business. Your best option as a business owner or decision-maker is to prevent litigation from becoming a consideration. If litigation does become an issue, you will require an experienced attorney to protect your interests.